The Factory Tax is the inability to fully expense investments in machinery and buildings. It is currently temporarily abolished in March 2023 until 2026, but we have the opportunity to make it history once and for all.

Unlike expenditure on running costs (e.g. salaries, stationary), expenditure on fixed investment can only be written off over time, which fails to account for inflation and a real return on capital. This means, in real terms, firms pay a tax - a Factory Tax - on investment in buildings and machinery.

This hurts our productivity and investment. It encourages low-capital intensive knowledge economy businesses in the South East and London over high-capital intensive businesses in the Midlands and North.

Help us abolish the shackles holding down manufacturing and unleash Britain’s potential.

Abolishing the Factory Tax:

8.1%

more investment

£2,214

labour productivity boost per worker

6th

Tax Foundation’s International Tax Competitiveness Index

Source: Adam Smith Institute

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The Issue:
Britain’s Productivity Crisis

The Royal Statistical Society recently gave its UK statistic of the decade award to “0.3%”: the annual rate of growth in output per hour since the financial crisis. Over the last decade British labour productivity has grown at its slowest rate since the industrial revolution.

Productivity has a very meaningful impact on our quality of life. Our emergence from abject squalor before the Industrial Revolution and into prosperous modern societies is because of our ability to make more with less.

The Problem:
Low Investment

The UK has had the lowest level of private investment in fixed capital as a share of GDP in the G7 for over two decades.

This low level of investment has contributed to the rapid downfall of the UK’s manufacturing sector, which has declined by more than any other G7 nation.

The Cause:
Factory Tax

Britain’s corporate tax system is exceptionally hostile to capital investment. The UK is ranked 33rd in the OECD on the Tax Foundation’s Capital Cost Recovery index, and has the lowest capital allowances in Europe.

The bias in the tax system against investment is a contributing factor to Britain’s productivity crisis by discouraging investment.

The Paper:
Abolishing the Factory Tax

The ASI’s latest paper, written by ASI Fellow Sam Dumitriu and academic economist Dr Pedro Serodio, argues that the Government should Abolish the Factory Tax to level up Britain and boost wages.